Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose you are provided the following information as it relates to University Products, Inc. (UPI) capital structure: There are 10,000 coupon bonds which pay an

Suppose you are provided the following information as it relates to University Products, Inc. (UPI) capital structure:

  • There are 10,000 coupon bonds which pay an 8% annual coupon with 10 years to maturity and currently have a yield to maturity of 9% (assume annual compounding and face value = $1,000)
  • There are 100,000 preferred shares outstanding which pay a $2 dividend per share and currently sells for $15 per share. Par Value is $20 per share.
  • The common stock currently sells for $20 per share. There are 1 million common shares outstanding.
  • The beta of the common stock is 1.5, the market risk premium is 7%, and the risk free rate is 4%.
  • The firms tax rate is 40%.

Using the information provided above, determine the following:

What is the Market Value of the Firm?

$9,358,234

$20,000,000

$21,500,000

$30,858,234

What is the Weight of the Debt?

4.86%

30.33%

60.66%

64.81%

What is the Cost of Common Stock?

4.86%

10.00%

13.33%

14.50%

What is the Weighted Average Cost of Capital?

11.68%

12.78%

13.33%

14.50%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cryptocurrency QuickStart Guide

Authors: Jonathan Reichental

1st Edition

1636100406, 978-1636100401

More Books

Students also viewed these Finance questions